LaGRANGE — It’s tax time and that means scams.
After a former tax preparer was arrested last summer in LaGrange for allegedly swindling the state out of more than $2 million, a Lanett, Alabama, attorney who’s representing some of the people she allegedly victimized is speaking out.
Chuck Reynolds, a bankruptcy attorney, said taxpayers should exercise caution when selected a tax preparer, especially if the preparer offers a refund that seems too good to be true.
“Some of these preparers will file bogus returns and get large refunds for people,” Reynolds said. “The next thing you know, people are telling their friends and neighbors who go and use the same preparer.”
Even if a taxpayer is unwittingly scammed and accepts a larger-than-owed refund, he or she can still be liable for returning the overpaid refund — and for the penalties and interest the Internal Revenue Service tacks on, Reynolds said.
The damage done by a fraudulent tax return can have long-ranging repercussions and can result in massive sums owed to the IRS.
“Once a preparer is red flagged, the IRS goes after other taxpayers who used that preparer,” Reynolds said. “And once they spot a phony return, they go back and look at three years of returns.”
The IRS frequently applies as much as a 25 percent penalty on money owed, he added. Interest is also accrued on a sliding scale.
In the case of the LaGrange preparer arrested last summer, investigators contend she was filing fake businesses on people’s tax returns and claiming tax-deductible losses. In the case of one of Reynold’s clients, the deductions landed the client a $12,000 tax refund — money the client now has to pay back.
“This can have life-changing implications,” Reynolds said.
On top of owing money, tax evasion is a felony and is punishable by up to five years in prison and a $250,000 fine.
When selecting a tax preparer, the IRS offers this advice:
• Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.
• Avoid preparers who base their fee on a percentage of the amount of the refund.
• Use a reputable tax professional who signs the tax return and provides a copy for the taxpayer’s records.
• Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months, or even years, after the return has been filed.
• Review the return before signing it and ask questions on entries that seem questionable.
• No matter who prepares a tax return, the taxpayer is ultimately responsible for all of the information on the tax return. Therefore, never sign a blank tax form.
• Find out the person’s credentials. Only attorneys, certified public accountants and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
• Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
IRS debt can follow taxpayers just about anywhere, Reynold said.
“The IRS knows about your property, your checking account, your employment … they know what you have financially,” he said.
“Go ahead and do yourself a favor,” the bankruptcy attorney added. “File a reputable return.”
Tyler H. Jones is a reporter with LaGrange Daily News. He may be reached at 706-884-7311, ext. 2155.